Legal Question in Business Law in California

It is rare that an LLC is better than a closely held corporation for a small business form. Under subchapter S you can elect to have a small corporation taxed like a partnership, and thereby avoid the franchise fee that California stupidly tacks onto LLCs. Other than that, however, I see a whole lot of potential issues with what you are doing. The brother may not be interested in the business but he or other heirs may be very interested in its value to the estate. You face huge potential complications if this guy effectively just gives you the business he has created without you paying for it in cash or assets that will go to his estate. They could raise charges of everything from fraud to undue influence to elder financial abuse. If you do this without step by step legal guidance AND even more important, independent legal counsel for him, you are setting yourself up for business-killing legal disputes once he passes.

You will want to form either a LLC or a "S" Corporation...along with either the shareholders agreement or the LLC Operating Agreement that grants, among other things, the transfer of his shares upon him leaving the planet. If you would like to read a FREE MEMORANDUM on the advantages and disadvantages of different legal entities, go to http://www.californiabusinessdevelopmentattorneys.com/Corporations___LLCs.html#

By Grace...

Shawn Jackson ESQ. (707) 584-4529

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Advising you properly would require some information about the nature and vaue of the business, how you plan to pay for the share you would be acquiring, whether your payment would be considered fair value, the percentage interest you'll acquire, and a few related matters.

I interpret your question as one about the advisability of forming a business relationship with a dying man, not whether an LLC is better than a corporation, or, for that matter, a partnership.

Two categories of problems come immediately to mind. First, in very short order, you will have a stranger as a co-owner in your business. The second problem is that if you acquire your interest in the business for less than a fair price, you are vulnerable to legal action by the dying gentleman's heirs, or those who expected to become his heirs.

I'd be very cautious about who may end up being a co-owner, and about any transfer of an interest in a business that involves giving less consideration than its demonstrable fair market value. There may be additional trouble signs here, such as whether you have the knowledge, experience and capital to run this business after your co-owner passes away, but the main ones are future co-ownership with strangers and potential attack on the fairness of the acquisition transaction.